An institutional investor has accused Daily Mail and General Trust (LSE:DMGT) owner Lord Rothermere of trying to take the newspaper publisher private for less than half its fair value.
Following a similar charge by a fellow major investor earlier this month, J O Hambro Capital Management, which holds a 3.3% stake in DMGT ‘A’ shares and advises over a further 2.6% holdings, said it is "not currently minded to accept the offer" and was "underwhelmed and unconvinced" by the arguments from board directors about the implied valuation of the some of the assets, such as the newspaper publishing business.
On 3 November, Rothermere and those directors of DMGT deemed non-conflicted agreed a takeover price of £850mln, with shareholders to receive 255p in cash, a special dividend of 568p, and 0.5749 Cazoo shares for each share they own.
Hambro said in a statement on Friday evening that the price being offered "is neither fair nor supportable by a) the current performance and trajectory of the majority of those assets and b) the longer-term value inherent in those assets in a more favourable post-COVID environment".
The manager added that it was "extremely concerned that the asymmetry of information between RCL and its fellow shareholders could be exploited to the detriment of selling ‘A’ shareholders" by the Rothermere family's RCL vehicle.
Having discussed the implied valuation of the group's assets with the group's independent directors, the manager said it believes "there may have been a lack of detail and rigour in developing the valuations of these assets", and "would caution against over-emphasis on the more recent performance of some of the group assets, for example the newspaper or events businesses, where revenues or margins have faced some understandable shorter-term pressures".
According to Hambro's own financial modelling, RCL’s implied valuation of DMGT’s remaining assets at 255p per share, even with the gross debt attached, "is only approximately 50% of our base case valuation of these assets and around 25% of our bull case".
The manager said DMGT's digital assets, Trepp, Mailonline and Landmark, "are highly valuable" and "on their own worth more than RCL’s current valuation of the remaining group".
"That would leave the events businesses, all of the newspaper assets and the portfolio of venture investments as free options for RCL."
There was a particular lack of disclosure around the assets in the venture portfolio and even though they are currently loss-making, "may be worth materially more than the stated book value", the statement added.
"Given the current clamour for high growth digital assets, we would urge far deeper disclosure over these assets: the businesses invested in, the stakes held, their financial performance, their market opportunity and their differentiation. DMGT has a clear track record of developing assets from this portfolio which have then been sold at significant premiums, Cazoo being the most obvious recent example."
Hambro called on fellow investors to pay attention to the "clear inconsistencies in the narrative" in the offer documentation, where it said there is too great an emphasis on the short-term issues which DMGT faces to support RCL’s offer and urged fellow investors "not to allow RCL to exploit the current asymmetry of information in relation to the remainder of DMGT’s assets and to reject the offer at this price".
The day after the RCL offer was published, Majedie Asset Management, which has a 4.6% stake in DMGT, said its estimated valuation of the largest businesses within DMGT was well over double the offer price and strongly urged shareholders not to accept the offer.
Other funds that are shareholders of the company include Lindsell Train with 13.6%, Artemis with 9.4% and Schroders with almost 4%.